ERP (Enterprise Resource Planning) is a software application for managing and integrating the functions of central business processes such as financeThe system is used to manage the entire supply chain, personnel management, the logistics chain and inventory management. It is essential that all of this is integrated in one system on one database.

The essence of an ERP system

An ERP system consists of software components or modules, each of which is focussed on a specific ERP system. These focus on parts of the process landscape, such as sale, Purchasing, logistics, production, service, finance etc. Business process concentrated. Some of these modules are relevant for almost all companies.

Key financial module of an ERP system

The finance module in an ERP software automates the Accounting, Invoicing, forecasting and the reporting and analyses based on this. This is often the main reason why a company switches from stand-alone accounting software to an ERP system. Finance is the heart of the ERP system, as it were, converting information from all areas into financial data and controlling it with corresponding impulses to the other connected business processes.

Human Resources (HR) in ERP software

Depending on the industry, personnel management or human resources (HR) is also of key importance as an integrated module in an ERP system. The module, also known as Human Capital Management (HCM), manages employee data. It manages and controls social benefits and payroll accounting. At the same time, areas such as further education, training and certification are increasingly being integrated. Holiday and other absence management are often directly docked on. Working time models and overtime management can also be found here, but are therefore essential for other areas of labour management in other modules.

Or To Cash for the trade

For retail companies, the sales module with Order to Cash process is particularly relevant. The entire commercial process is supported here, from order to delivery note to invoicing. The functions of a CRM application are often also incorporated into the functional scope of the ERP software. Quotations and opportunity management are then integrated upstream of sales.

ERP for purchasing

Procurement is also managed within an integrated ERP solution. Whether a simple purchasing process or complex blanket order processing. It should be possible to visualise as many purchasing processes as possible. The system can also be expanded to include e-procurement.

SCM, WMS & TMS

Companies that trade in physical products usually require a module for supply chain management (SCM). Stock levels are tracked and all warehouse transactions are then controlled in the WMS module. Depending on the situation, a transport management system (TMS) may also be required as an extended logistics function.

production planning and production control (PPS)

ERP systems often have functions that were previously handled in specially programmed software. In fact, this makes a lot of sense given that almost all other processes are dependent on production. The type and selection of functions of such a module varies greatly depending on the type of manufacturing operation:

A rough distinction is made here between:

Once production / project production
small series production
serial production
mass production
Flow production / process manufacturing

What makes a good ERP system?

Of course, every company has to judge for itself which ERP software is good for it. However, some criteria have proven to be correct and important in determining what makes a good ERP system.

Ssingle Source of Truth

The basis and fundamental feature of a good ERP system is the central database of all mapped modules within the software. This feature guarantees quick and easy networking and what is often referred to in IT as a "single source of truth". Centralised data maintenance prevents redundant effort for data maintenance and transmission errors.

Uniform operation

Uniformity is also at user interface advantage. After all, a standardised appearance and user guidance ensures fast and effective training and support. Once processes have been learnt, they can often be used for the following processes. service derive

The ability to network

Although ERP software endeavours to manage as many functions and information as possible itself, the ability to exchange data with other data sources is essential. It is actually the most essential feature that makes an ERP system the engine of digitalization to do in a company.

Keeping up with the times

In general, it is a huge challenge for most ERP software manufacturers to keep pace with constantly changing technology. Although there are often decades of experience in the functional processes, these also drag along historically grown technical implementation. Regular updating of this technical basis is therefore a constant obligation.

Best practice and flexibility

Standardization has always been an essential part of ERP. best practices is the buzzword. Processes that have been tried and tested thousands of times have been optimised over the years to become the best process at some point. So much for the theory, and there is some truth in it. But a good ERP system should still be flexible enough to be able to adapt to the special features of a company that characterise it.

ERP ensures automation

Good ERP software naturally ensures extensive automation. Ideally, a large part of the manual input is then taken over by the software. Other modules are automatically supplied with information, which they in turn can use to control their processes.

Documentation and user base helps everyone

ERP software often has thousands of functions. The documentation of these is a major trade in its own right for ERP manufacturers. A good ERP system has documentation that is constantly growing and is quickly accessible to the user. An indirect knowledge bank is the knowledge of other users. Exchanging information with other ERP software users is often the quickest and best way to obtain the required information. Of course, this requires sufficient distribution of the software.

The advantages of an ERP system

ERP software offers numerous advantages, most of which can be attributed to the standardised database and standards. The joint use of modules instead of different individual systems often makes it possible to realise cross-departmental Business processes to establish. The resulting data basis provides reports and analyses with valuable insights and often makes the exchange with other data systems possible in the first place.

ERP software can also offer a number of other advantages:

Efficient processes through automation
Managing and overcoming complexity
Monitoring of rules, regulations and risks
More transparency for all parties involved
Better customer services through better customer data
Better management of supply chain
Reporting with more and accurate information.
Basis for end-to-end digitalisation

ERP types

ERP systems generally vary in type depending on the size of the company. In addition, the company's industry certainly plays a role, as do other technical preferences in terms of infrastructure, location or strategy.

ERP for SMEs vs. medium-sized companies vs. large companies

For smaller companies, some manufacturers offer basic ERP products that do not go beyond basic HR, finance and other frequently used components such as order management and CRM and are comparatively easy to integrate.

Other offers are aimed at medium-sized companies. Definitions vary, but this market is essentially defined as companies with several hundred employees and an annual turnover of between EUR 20 million and EUR 1 billion. Midmarket ERP solutions have more additional modules. These include, for example, SCM and/or WMS - and they are suitable for more users than entry-level ERP solutions.

ERP solutions that are aimed at specific industries are in a class of their own. The advantages of such software are usually obvious: it offers functions that are tailored to the specific requirements of an industry.
The disadvantages that arise from the fact that these solutions are rarely backed by large manufacturers with their development power often pale in comparison.

Another category is large companies: Companies with a turnover of more than EUR 1 billion and usually thousands of employees. Unsurprisingly, ERP systems for such corporations usually have the most modules. At the same time, the structure of the software is also structurally different from those for small or medium-sized companies. The focus on clearly defined processes helps to control large, complex organisations. However, the flexibility that smaller companies urgently need also suffers.

On-premise vs. cloud vs. hybrid ERP

For a long time, ERP systems ran "on site" on the company's IT infrastructure. Over time, companies began to operate their ERP applications in outsourced data centres. Today the cloud the trendy environment for providing the software. The models that combine the different types of provision are now the real trend. This is also referred to as hybrid ERP systems, which combine local and cloud-based components.

One on-premises ERP must be paid for through the purchase of software licences. This is largely based on the number and type of users. Implementation can take time and updating to new versions is usually a small project in itself. However, an on-site installation also has major advantages compared to typical cloud ERP. Customisation to specific requirements is easier to implement. Integration with other locally installed software systems is also generally easier.

For various reasons, some companies are reluctant to integrate business-critical software into the cloud to relocate. Concerns about data security and control are often decisive. Even companies in strictly regulated industries or public authorities are not flexible enough in terms of the requirements they have to fulfil to move their systems to the cloud.

In contrast, a cloud ERP may incur slightly lower upfront costs. The software licence is usually paid for via a monthly rental fee. In the long term, however, renting is also more expensive than ownership. The highest cost savings are usually achieved with SaaS systems with multiple tenants using one instance of the business software. The structure of the software is the same for everyone and only the data that is organised using it is managed separately. SaaS ERP is usually leaner and handles a smaller number of business processes than on-premises ERP.

Most medium-sized companies are now moving their systems to the cloud. However, these are often ERP concepts that are implemented on the basis of a PAAS (Platform as a Service). The infrastructure is highly standardised, but the ERP software that is provided on it is tailored to the needs of the individual company.

The more industry-specific the requirements for an ERP system become, the fewer companies find SAAS offerings that fulfil these requirements. For the manufacturers of such ERP software, most of whom operate in a niche market, it is often not worth switching or even offering their industry software in parallel.

History of ERP

The origins of enterprise resource planning go back over 100 years. In 1913, Ford engineer Whitman Harris designed a paper-based system for planning production. The primary aim was to find an economically optimised order quantity. This process remained decisive for the manufacturing industry for decades. The manufacturer of tools Black and Decker brought the computer into play in 1964. A mainframe computer supported the company's material requirements planning (MRP). Of course, IBM was also involved in the early days of ERP software. The systems from "Big Blue" mainly addressed MRP processes. However, all of these systems had one thing in common: they were developed specifically for companies and were often a kind of add-on to hardware that was usually still expensive.

Mainframe software for controlling financial processes

In the 1970s, manufacturers - including the two start-ups SAP and Baan - began developing mainframe software to control financial processes in a central database. The integrated software, which was structured in modules, was continuously developed and also included human resources and accounting functions.

In 1990, the market research company Gartner created a new software category. Enterprise Resource Planning (ERP) was more in line with the ever-expanding requirements. Most ERP systems have an MRP module or map the functions integrally.

client-server model

Until the 1990s, ERP software ran on mainframe computers. Now, more and more manufacturers began to convert their systems to the client-server model. From then on, desktop devices communicated with a central server. This also had an impact on prices. ERP software was now considerably cheaper and also attractive for medium-sized companies of all sizes. Ease of use became better and better compared to the cumbersome, character-based interfaces of the mainframe days. A key factor in this was that ERP manufacturers implemented graphical user interfaces in the style of Microsoft Windows.

Cloud ERP

The introduction of cloud ERP systems in the early 2000s represented an additional fundamental innovation in the provision and utilisation of ERP solutions. The cloud enabled companies to communicate ERP software more easily with customers, suppliers and partners. In many cases, web browsers became the user interface of ERP systems.

Departure with AI

In the recent past, ERP manufacturers have focussed their development work on their cloud-based systems. However, this is also due to the fact that the computing capacities of the internet are needed for upcoming trends. These include AI and machine learning, blockchain or predictive analytics and other new technologies.

ERP